It’s (almost) all about the mortgages. The bank has been paying mightily to clean up mortgage-related issues and other legal problems, taking the tack that it’s better to settle and get those problems out of the way. Bank of America
/quotes/zigman/190927/delayed/quotes/nls/bacBAC has also been slashing expenses and jobs during Brian Moynihan’s four-year tenure as CEO, slimming down after years of empire-building.

Bloomberg

It all sounds like making the best of a bad situation. But one wonders if all the hope and change has already been factored into the stock price. And impossible-to-predict litigation expenses could still wreak unexpected havoc in any quarter. Sanford C. Bernstein analyst John McDonald says the “key swing item” for Bank of America’s earnings will be the litigation provision. He is expecting $1.4 billion, up from $1.1 billion in the third quarter.

Here’s more on the topics to watch for:

Mo’ mortgages, mo’ problems: Unlike Citigroup Inc.
/quotes/zigman/5065548/delayed/quotes/nls/cC and J.P. Morgan Chase & Co.,
/quotes/zigman/272085/delayed/quotes/nls/jpmJPM Bank of America has not settled with the Federal Housing Finance Agency over allegations that it misled investors about the quality of mortgage-backed securities sold before the financial crisis. Analysts are also wondering if the government’s Financial Fraud Enforcement Task Force will pursue Bank of America over mortgage-backed securities as aggressively as it did with J.P. Morgan, which helped seal J.P. Morgan’s $13 billion settlement with the Justice Department in November. Bank of America has disclosed that the Justice Department and the Securities and Exchange Commission have filed civil actions over a 2008 mortgage offering.

The $8.5 billion overhang: The bank is still waiting to hear if another big settlement over mortgage-backed securities, this one with private investors, can go through as planned. It’s been a long saga: Bank of America penned the $8.5 billion settlement with the investors in 2011. But some of them, including American International Group Inc.,
/quotes/zigman/557836/delayed/quotes/nls/aigAIG said it wasn’t good enough and took the bank to court. The hearings ended in late November, and the judge’s decision is expected soon. Bank of America would like the settlement to be approved and over with. If the judge doesn’t approve, it’s back to the drawing board.

Paying the shareholders: The big banks just submitted their stress-test documents to the Federal Reserve. That’s where they can ask for permission to raise their shareholder dividends or buy back their own shares. Bank of America has been forced to pay an inglorious 1-cent quarterly dividend since 2009, after it took a double helping of government bailout loans (since repaid). In 2011, the bank asked the Fed for permission to raise the dividend but was denied, and it doesn’t want to go through that embarrassment again. But the bank got permission last year to buy back some of its own stock, and some analysts now think the stars may finally be aligned for a dividend increase. Ken Usdin at Jefferies expects Bank of America will ask to pay shareholders 6 cents a quarter. Anthony Polini at Raymond James thinks the bank will be paying 10-cent quarterly dividends by the spring.

By the numbers: Analysts polled by FactSet are expecting adjusted per-share earnings of 28 cents, up from 3 cents a year ago, when the bank ate the cost of settling mortgage-related disputes with Fannie Mae and federal banking regulators. Analysts are expecting revenue of $21.2 billion, up 12% from a year ago.

The stock is up more than 7% in the new year, better than its peers. It soared 34% in 2013, in line with the KBW Bank Index.

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